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Fashion Obsolescence

04 April 2017 by pdonnat

The day Ralph Lauren announced it is closing its Flagship in NY to adjust its operations, The Neiman Marcus Group LLC (NMG) has few options left. The company is operating the 2 Bergdorf Goodman stores in Manhattan and 42 Neiman Marcus stores across the United States. The company is focusing on luxury retail operations. The company is private since a LBO by TPG in October 2005. TPG sold wisely NMG in 2013 to Ares Management and the Canada Pension Plan Investment Board. The company is a high yield credit since 2005. NMG is member of all CDX.NA.HY vintages, for series 6 to series 28, since March 2006. A classic of the high yield portfolios. The story is turning sour. Brick and mortar retail operations are struggling. The new generation is purchasing online and away from the classics. LBO sponsors have extracted as much value as possible leaving the company highly leveraged – 5BUSD of debt - at a time of consumers walking away from US malls. The credit default swap premium has been multiplied by 3 since the beginning of the year, trading today at 1,500 bps or 27% upfront plus 5% running, a 75% probability of default over the next 5 years. The market is pricing a restructuring of the whole company. Hudson's Bay Company (HBC) form Canada was rumored to be interested to buy NMG but at a huge cost for bondholders. HBC is also rumored to be interested in Macy’s which is also for sale. Retailers are on the catwalk.
Meanwhile the credit indices traded firmly, the IG US index outperforming the IG European index.